Comment on Rationality Quotes Thread July 2015

Mon, 27 Jul 2015 17:07:38 GMT

While I think that Clarity is misunderstanding Peter Thiel (Thiel says that a potential monopoly is the carrot that drives a lot of innovation; Clarity wrongly interprets this as "monopolies drive progress")

I read Thiel to be making the second argument as well, because monopolies have capacity to make the profits necessary for major R&D spending, as well as the capacity to benefit directly from major R&D spending. No individual commodity producer making zero economic profit has an incentive to invest in better methods of producing their commodity, as they correctly believe that the innovation will rapidly spread and benefit the consumers, rather than them.

The short way to visualize it is that the market for innovations has producer and consumer surplus, and only monopolists can capture both at once, which would suggest a monopolistic industry would spend more on innovation than a competitive industry. (This is true for some innovations and not others; monopolies should be expected to be better at developing basic science related to an industry, and competitions should be expected to be better at determining customer preferences.)

Discuss